The section on Malaysia is: THE RAT RACE PART V - THE MALAYSIAN RAT RACE.

The Matrix depends on CashFlow to survive and Banks are the intermediaries to facilitate it. Without banks, the system will crash.

That is why governments go to great lengths to protect and save the banks when they get into trouble. Hence the reason why the US Federal Reserve has printed trillions of US dollars to save Wall Street.

But the bankruptcies of Bear Sterns and Lehman Brothers in 2008 is fatal and the financial system will come crashing soon. Protect yourselves by exchanging your cash for gold or silver.

In Malaysia, the banks are also vulnerable due to their extreme leverage. The Bank of International Settlement mandate an 8% reserve ratio, meaning banks should keep 8% of their deposits and lend out a maximum of 92%. That's a leverage of 12 1/2 times. Today, Bank Negara mandate a reserve ratio of 1% as shown in the video above, meaning the banks have loaned out 100 times the deposit.

These deposits are loaned out long-term whereas bank deposits are short-term. When there is a loss of confidence in the banking system and people withdraw their deposits, there is a bank run. Invariably, banks fail and require a government bailout. This is the Achilles Heel of the modern banking system and by correlation, the Matrix.

When governments become oppressive and greedy, extreme inequality results

It's in controlling them through squeezing the financial system. Politicians understand the stick. The stick is our financial power.

Study history. We will learn that the British left India because it was no longer profitable to stay. Likewise, they did the same in Malaya. They left behind a proxy (UMNO) to manage their former colony (Malaya) on their behalf as they still had up to 80% of the local economy in their hands. Unfortunately, their proxy has mutated into a very malignant colonial power that cheats during elections to stay in power.

We said that the KLSE is a casino in which the Rats are exploited. Read how predatory High Frequency Trading Programs do just that. The simplest solution is to get out of the market and buy gold or silver.

“Markets are purely about Speculations. There is no more such thing as Investing in the markets. It is just Speculation on different timeframes. “

This is the truth, the real truth and nothing but the market truth. Those who have headed the currency or money desks in the big foreign banks will tell you, life sometimes is like a Datuk T sex video plot. You have to think of moves and how to generate waves in order to make big killings!

Now, in these tech-boosted days, speed or High Frequency Trading is the new leading-edge, special weapon of the big boys versus the small boys. To some of the older folk in the market, this is is Cheating! It used to be called front-running, but tell it to the Gen Y geeks!

Just like derivatives are made of nothing and yet they dominate the world's financial markets, HFT is now part of this new fuzzy-wuzzy hi-speed landscape. Life is indeed getting scarier by the moment or in HFT terms - by the nano second or even pico-second!

So, for Malaysians, the first question they need to ask is whether their pension fund, i.e. the Employee Provident Fund, is up to mark will all the new 'gimmicks' out there waiting to entrap our money. You can call these financial chicanery and so forth, but techniques such as these are already entrenched in the US, Europe and spreading through Asia. Unless, they are outlawed - and can anyone imagine what would happen if derivatives are illegalised like the Bersih T-shirt - our public fund managers will just have to get more savvy.

This means that the investment Boards at places like EPF, KWAP, the big GLCs and so on, must also upgrade their knowledge and skills. We don't want rogue traders blaming unfair systems for losing billions of the people's money, do we?

This is the purpose of this article, to provide some information on a fairly recent, extremely exhilirating and also potentially dangerous development in computerised program trading.

Here and Now, no longer Buy and Hold

Traditionally we have the market that is made up of retail and institutional investors together with the market makers that facilitates these investors. In the last couple of years, there have been much changes in the landscape of investment and that is High Frequency Trading or HFT for short. HFT accounted for about 70% of daily trading volume in NYSE, 60% in Europe and 50% in Asia. In other words there is a paradigm shift in the traditional Investors Buy and Hold market to a Trader’s market.

HFT or High Frequency Trading refers to large and very fast execution of quote orders by computers programs, which will create cascade-like buying and selling.

Trading cycles what seems to be days and weeks now are being done in milliseconds and nanoseconds. In other words market has shifted from the traditional (fundamental and technical analysis) with long term holding for equity appreciation to short term trading that benefit only the speculators. The strategy of investing today refers to ‘here and now’ rather than ‘buy and hold’.

As we know HFT is the main culprit in the May 6, 2010 “Flash Crash”, where the Dow plunge more than 700 points in just a few minutes only to recover a few minutes later. The whole process was initiated by the sale of $4.1 billion of security by US money manager Waddell & Reed Financial Inc and was accelerated by other HFT traders.

The multiple orders coming from multiple locations and multiple HFTs had resulted in what they called the “QUOTE STUFFING”. The number of quotes coming in simultaneously from the HFTs just overwhelms the computers at the exchange and basically jammed it. That is why during that time there are a lot of stocks that are trading with the absence of buyers or buyers bidding at very low prices and this is one of the main contributor to the Flash Crash of 2010.

Shavings: how to beat the queue

The new trendy word in HFT trading is ‘SHAVING’. It refers to the use of ultra high speed computers to engage in high speed computing so as to shave off the time in buying and selling of stocks, often within nanoseconds.

Just to give you a glimpse of what technology are available in the financial markets nowadays. People like Nanex who developed the NxCore which is a streaming WHOLE MARKET data feed (ticker plant) and comes with an API (Application Programming Interface) for developing your own trading software. It essentially brings the whole market, like the hyperactive US Options Market (OPRA) which transmits over 1.7 million quotes per second to your desktop. NxCore only requires a low end Pentium 1.0 Ghz with 80Mb hard drive to receive and database 1.4 million quotes per second or over 6 billion quotes per day and with a CPU usage of less than 5%. It can accomplish this task is because of its award winning proprietary data compression technology. It is basically like Co-Locating your PC next to the Data Farm Servers in NYSE.

NYSE is known to have leased space INSIDE their data warehouse for HFT platforms. This is also called Co-Locate. The closer you are to the data center, the more picoseconds you will likely shave off. In other word the big boys are practically trading directly from the exchange lock-ups! And of course these exchanges are making a killing out of renting these spaces. Forget about the exchange imposing rules to deter HFT because they themselves are in it as well.

India is also on the way to promoting full scale HFT, as a senior official from one of India’s Stock Exchange said that ‘its bourse is allowing large brokerages/fund managers to place their terminals inside the bourse so as to speed up their orders’.

A few years ago, trading firms are talking about milliseconds. 1 millisecond is 1000 of a second, however milliseconds is already history. In the past 2 years trading speed had been shaved down from milliseconds to microseconds and now nanoseconds. Recently they are talking about reducing the speed of execution down to picoseconds. A picoseconds is one trillion of a second or put it rather naively it is like one second in 31,700 years.

According to Donal Byrne, CEO of Corvil, a high speed trading technology company specialize in providing low latency network management, suggested that in a not too distant future trading speed will be reduced to picoseconds.

A good example of a Flash Crash generated by HFT can be seen in the stock chart of Brown Forman. It took only one second to bring down the price of Brown Forman from $70 to $16.64, a 75% or $7.5 billion loss for a $10 billion dollar company.

Race to Zero or what used to be called front-running

The reason for the competition to ‘race to zero’, is because it enable them to ‘front run’ their competitors. By front running it means it effectively put them at the front of the queue and have priority over other orders and help them react faster than others. According to some people in the know, Citadel which is one of the HFT heavyweights receives order flow from brokers like TOS. When they receive orders, they can decide whether or not to fill your order according to your price. If they fill you up then they will know exactly what are the small players buying, their market sentiment and momentum. By totaling the retail orders they are able to judge market sentiment on a particular price and also the pain threshold of the weak holders.

Predatory HFT programs are design to block retail investors from making successful trades against the house or Wall Street. An example in the following shows how the game of front running being played. Say stock ABC is being traded at the bid of $1.00 and ask $ 1.02. As a retail investor key in an order to buy at $1.02, normally it will get filled. But HFT programs which is ‘able to see’, will automatically raise the ask price to $ 1.03. So the next bid price will be higher and automatically set as $1.01, so that the HFT programs make the human investor to buy higher at $ 1.03 instead of $ 1.02.

According to Themis Trading Analysis white paper the profits generated by HFT and Algorithmic (algos) trading can go as high as $ 3 billion a year even though margins generated from each trade ranges from $0.01 - $ 0.02. Although they are not making much money from such spreads but they are making a killing from liquidity or Volume rebates of 0.005/share from the exchange. It is reported that Goldman Sach’s HFT trading alone revved up something like 2 billion shares a week and you times that with $0.005/share and times again 52 for the rest of the year and the figure surely adds up!!

In short, HFT trading is just basically latency arbitrage and those with ultra high speed computer hardware will always stays on top. And with its predatory HFT programs which is design to trigger cascade like buying and selling and also front running the chances of them losing in the market is minimal

HFT already in Asia

Sad to say that HFT have already made its presence in Asian markets. If you pick any top five counters in any Asian bourse especially the Indonesian JSX. Just go to the ticker tracking and you will be able to see some action of HFT.

As an example, say counter ELTY trading at 156 rupiah, when you click the stock tracking you will be able to see many transactions done at 156 with similar lots size say 20 lots per transaction. Sometimes there will be 200-500 transactions of 20 lots at 156 rupiah done within 2-3 seconds. This is the footprint of HFT because there is no way any human can key in so many transactions within 2-3 seconds.

In essence financial markets are rigged like the casinos. In the game of Black Jack, if the casino loses money on a particular table it will first attempt to change the deck of cards. If the table continues to lose then they will change the croupier and if it still loses then eventually they will close the table. They will always change the rules as in financial markets.

The main reason the exchanges are not banning HFT is because it is providing liquidity to the market, tighten the spreads and hence lowers brokerage costs.

Only big boys benefit, not average Joes

In financial markets, if you win consistently the big boys will deploy predatory HFT programs that will allow them to step in front of a trade which they are able to ‘see’ and front run the retail investors and thus reducing their profits.

At the end of the day the markets are design to benefit the FEW and not the majority average Joes. In order to make money and survive, you need to understand the rules of the game and also learn how to exploit the weakness of the big boys.

This article is to provide more information to the public about HFT. As you can see, it is dangerous and can be awesomely destabilizing for the financial markets.

This article is also to highlight the nature of the beast in the deposits with the pension funds in Malaysia like the EPF and also the many other Mutual Funds.These are Not savings account or fixed deposits, but a speculative gamble into equity markets, which in future may or may not be able to redeem at their original value like what is happening to 401,000 investors in the US.

For the moment the traditional method of investing using due diligence in fundamental data and technical analysis may still work for the retail investors. But they have to expose themselves to frequent bouts of 40-60% decline in markets.